<I feel as if you people do not even have any clue about this company or the how the company is ran. I feel as if you are posting information that is not very reliable. You need to check your sources before you post something. >

DILLARD'S DEPARTMENT STORE once was a glorious example of American retailing. Founder William Dillard ran the Little Rock, Ark.-based company with an iron fist, paying attention to detail and buying other companies on the cheap.

But something has gone very wrong. What was once the 62-year-old company's biggest strength, the exacting Dillard family, is now its biggest weakness. The Dillards, always an insular, stubborn clan, now seem less interested in boosting shareholder value than in retaining control--they own only 10% of the company but hold 99% of class B stock, which allows them to elect two-thirds of the board.

Dillard's stock has dropped to its 1988 price, sinking 70% from $43 two years ago. Earnings have been stagnant for much of the past decade, slipping 20% last year to $219 million, on revenues of $8.7 billion. The latest financials offered little hope for the 338-store chain. Second-quarter profits sank 74% as same-store sales fell 3%.

The Dillards have trouble figuring out when it's time for a sale. Not only in their stores. For the company, too.

The biggest problem for the largely southern chain seems to be a reluctance to give up what no longer works, whether it is management or marketing. Since the late 1980s Dillard's has relied on "everyday low pricing," meaning few sales. While the tactic works for discounters like Wal-Mart, it has not motivated department-store shoppers. Dillard's has also been slow to mark down end-of-season items, even bathing suits on the shelf long after customers are buying clothes for the new school year.

Dillard's sales per square foot of $154 is one of the lowest figures in the industry. Federated delivers $193; Sears, $315.

Then there's the matter of family. The senior Dillard, 86, passed on the chief executive title to his son William II two years ago, but he still wields a lot of power in the boardroom. While he has stepped out of day-to-day operations, it is probable that his kids--four are top managers at Dillard's--won't sell the company while he is alive. Nor are they likely to import an outside merchant as J.C. Penney has done.

There's always a chance that another disastrous quarter will bring them to their senses. But nothing's a sure bet with Dillard's. The family answers to no one, running the company as if it were private, thanks to a dual-class stock structure that was set up when the company went public in 1969. The board also is stacked in its favor: 5 of the 12 members are Dillards, including the elder Dillard, now one of the oldest chairmen of a U.S. public company. Five are 70-plus, making it one of the U.S.' grayest boards.

Management routinely snubs shareholders, analysts and reporters. The Dillards refused to be interviewed for this story. "It's like a clam with laryngitis," says Kurt Barnard, president of Barnard's Retail Consulting Group.

"Shareholders have written letters but get no response," fumes Thomas Jackson, a managing director of Prudential Investment Corp., Dillard's second-largest shareholder, with a 9.2% stake. "They are arrogant and impervious to outside input." Jackson has lost a bundle on Dillard's but hangs on, hoping for a takeover.

It wasn't always like this. Dillard's was once one of the country's finest retailers. The company was also a darling among investors who didn't care about the elusive family as long as they posted strong numbers. In a FORBES profile in 1991 we lauded the company for "profit margins that would knock your eyes out."

Only the blind would miss the profit erosion today. The gross margin dropped to 33.6% in 1999, its lowest this decade; the operating margin sank to 8.2%, down 1.2 percentage points for the year.

To be sure, Dillard's shares some of its travails with other big department store chains, such as J.C. Penney and Sears. They are all losing traffic to specialty chains like Kohl's and Bed, Bath & Beyond. Dillard's itself blames slow sales of brands like Tommy Hilfiger.

Despite its troubles the family has done little to get Dillard's back on track. Management's biggest move was a surprise bid for Mercantile stores in 1998 for $80 a share, or $3.1 billion in cash. Dillard's won Mercantile, but it seems to have paid too much, assumed too much debt and bungled the transition. Dillard's scrapped store promotions and Mercantile's liberal return policy, two of its hallmarks. It also stripped the old names off the stores, replacing them with Dillard's.

Much of that blame goes to William Dillard II, 55, who was named chief executive just before the merger was announced. The transition still isn't widely cheered within the company. Apparently Junior lacks dad's merchandising and acquisition instincts. He is paying down debt but also using cash to buy back up to $550 million in stock. So far to little avail. The debt has been downgraded, and the stock is worth less than he paid for it.

The younger Dillard seems to share his father's reluctance to open Dillard's to outsiders. That makes selling out to rivals like Federated or May an unlikely voluntary move. Too bad--these family shopkeepers could use a little outside help.

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